Corporatism or Competition? Labour Contracts, Institutions and Wage Structures in International Comparison

Citation

Clark, A. (1999), "Corporatism or Competition? Labour Contracts, Institutions and Wage Structures in International Comparison", International Journal of Manpower, Vol. 20 No. 6, pp. 3-5. https://doi.org/10.1108/ijm.1999.20.6.3.2

This book represents the culmination of a significant research effort by the authors on the effects and implications of corporatism on wage structures which they have combined into a coherent and logically progressing text of nine chapters. Indeed, so logical is the progression of the text that the authors have based their advanced labour economics course at the University of Amsterdam almost entirely upon it.

The authors begin by reviewing the main definitions of corporatism that they use to categorise the 11 countries in their study, recognising both that such global definitions are problematic, but also that they are sufficiently overlapping for a workable definition to emerge. Their analysis then proceeds by following the approach of Krueger and Summers (1988) in using wage differentials, rather than wage levels or rates of growth, as an indicator of the efficiency of labour market processes, on the basis that labour of a given quality will earn the same wage if markets coordinate employment decisions efficiently. What the authors find is that corporatist economies have smaller non‐competitive wage differentials than more market‐orientated economies. It is, of course, commonly held that corporatism reduces wage inequality: what the authors show is that it also reduces the wage dispersion that is, in effect, redundant for allocative efficiency (p. 299). The authors focus on four specimens of non‐competitive wage differentials of this sort, with corporatist economies having smaller coefficients for industry affiliation, firm size (big firms pay more), tenure (corporatism seems perhaps to flatten tenure profiles), and in terms of bargaining regimes (corporatism reduces discrepancies in wages that result from different arrangements and union strategies). These all point us in the opposite direction from the widely held view of the benefits of decentralised free markets, and recognising these therefore represents something of a “point of departure”, as the authors put it. The rest of the book can then be seen as an attempt to establish the welfare implications of these findings (which, as it turns out, seem to be significant) and to provide an explanation for them. The crux of the explanation provided by Teulings and Hartog is that non‐competitive mark‐ups are a function of the size of the economic rents in the respective firms and industries: since workers capture part of these firms with the highest rents tend to pay the highest wages. Within corporatist states however, unions sacrifice some of their power in this respect in return for greater stability in contracts and this reduction of the exploitation of local rents enhances efficiency.

The authors′ detailed theorising starts in Chapter 2 from the observation of the ubiquity of rigid nominal contracts and builds on the literature that suggests a positive efficiency role for these in an uncertain world by obviating the need for incessant recontracting. This puts corporatist institutions that broker macro level nominal contracts in a different light than we are used to seeing, since rather than talk of the loss of flexibility at the local level, the emphasis here is on the importance of this in providing flexibility in the face of aggregate shocks, and how this reduces the demand for negotiation on the distribution of surpluses at the local level. In Chapter 3, the authors investigate the bargaining processes in a path dependency framework to highlight the importance of institutions, beliefs, and norms in sustaining implicit contracts, finding that even in the absence of unions, rent sharing is likely. They also show how different norms can lead to different sub‐game outcomes and that national differences in them are partly correlated with the degree of corporatism. In looking at the role of unions in Chapter 4, the authors show that corporatism encourages the proliferation of encompassing unions, which, with their greater emphasis on horizontal equity, results in efficiency in so far as it generates equal pay for equal work in the presence of adjustment lags, and mobility and information barriers that would otherwise constrain the wage setting process. In Chapter 5, the authors develop upon their core proposition to explain the pattern of interindustry differentials and in Chapter 6 the effect of corporatism on flattening tenure profiles is discussed.

Having developed the core ideas, Chapter 7 tackles the vexed issue of unemployment. Although this is not at the heart of what the authors are attempting to explain, if all the wage efficiency benefits they claim for corporatism are true then it raises the question of why Europe (which is generally held to be relatively corporatist) has relatively high unemployment. However, as the authors point out, this view is based on something of a myth since there is significant diversity in the degree of corporatism within Europe, and those that are indeed most corporatist (such as the Scandinavian countries) actually have relatively low unemployment. In addition to pointing this out, the authors present some stylised facts that suggest relatively high unemployment in Europe is not the result of corporatism. In Chapter 8, the authors plug some of the gaps in the broad‐brush approach adopted in previous chapters, by looking in detail at The Netherlands, utilising anecdotal evidence on how things work there in practice. The Netherlands is an obvious candidate for this more detailed work, but the turnaround in the Dutch economy in recent times has many causes not at issue here. This means that when reading this part of the text, it is important to remember that it does not attempt to answer all the questions on the relative merits of corporatism that might be needed to explain the Dutch economic “miracle”. In this sense the subtitle of the book conveys more of the flavour of its content than the main title. Nonetheless, it is a significant contribution to an important debate, and the cogency and logical layout of this text should ensure it secures a significant place on labour economics courses everywhere. If it does, then by influencing future generations of labour economists, it could play a major part in undermining the hegemony of the flexible labour markets approach that has tended to limit the debate on competition versus corporatism to one of efficiency versus equity.